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February 19, 2009

Disclaimer ( Qualified Disclaimer )

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Definition

A written document, wherein the beneficiary irrevocably refuses to accept assets they would otherwise inherit.  The disclaimer must meet the following requirements in order to be qualified:

  • It must be an irrevocable and unqualified refusal to accept interest in the property
  • It must be in writing
  • It must be received by the transferor of the interest, his/her legal representative, or the holder of the legal title to the property to which the interest relates ( for instance an IRA custodian or plan administrator) no later than  :
    • 9 months after the owner of the property dies or if later
    • 9 months after the beneficiary reaches age 21
  • The beneficiary must not have accepted any interest in the property- for instance, the beneficiary must not have taken any distributions from the retirement account
  • The assets must pass to the new beneficiary without any direction from the person making the disclaimer ( disclaimant)

Under a retirement plan, the new beneficiary would be:

  • Any other primary beneficiary of the retirement account, if there is no other primary  beneficiary
  • The contingent beneficiary(ies) of the retirement account, if there are none
  • The beneficiaries as determined by the default provisions of the plan agreement

Referring Cite

IRC § 2518

Additional Helpful Information

  • Disclaimants should consult with a tax planning attorney or other tax-expert on how a disclaimer would affect them from a financial and tax perspective
  • A beneficiary’s disclaimer of a beneficial interest in a decedent’s retirement account is still qualified even though prior to making the disclaimer, the beneficiary receives from the required minimum distribution for the year of the decedent’s death. Rev. Rul. 2005-36
  • A beneficiary can make a partial disclaimer or disclaim the entire interest

From Treas. Reg. §25.2518-1(b).
(b) Effect of a qualified disclaimer. –If a person makes a qualified disclaimer as described in section 2518(b) and §25.2518-2, for purposes of the Federal estate, gift, and generation-skipping transfer tax provisions, the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead, it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer. Accordingly, a person making a qualified disclaimer is not treated as making a gift. Similarly, the value of a decedent’s gross estate for purposes of the Federal estate tax does not include the value of property with respect to which the decedent, or the decedent’s executor or administrator on behalf of the decedent, has made a qualified disclaimer. If the disclaimer is not a qualified disclaimer, for the purposes of the Federal estate, gift, and generation-skipping transfer tax provisions, the disclaimer is disregarded and the disclaimant is treated as having received the interest.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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